No. of Recommendations: 10
I do know that unrealized gains that have accrued prior to establishing "residence" there would still be taxed at standard rates. Essentially, it is my understanding you would need to set a new cost basis which I believe would be set at the start of the tax year after establishing "residency."

Well, let me just say that your continued use of quotations to denote terms like "residency", "citizenship" and "residence" indicates to me that you aren't actually planning on becoming an actual resident/citizen of Puerto Rico - just that you want to have the appearance of being a "resident", so that you can skate by without paying US Federal taxes that are due. I would note that to become a bona fide resident of Puerto Rico, you must have stronger ties to Puerto Rico than to anywhere else, and not just live there for 6 months out of every year. You will need to own property there, and probably not own property that you use in the US.

That said, even assuming that you actually become a bona fide resident of Puerto Rico, as a US citizen, you are still required to file a tax return showing your worldwide income, excluding only Puerto Rico source income.

Do you have some documentation from the IRS showing that you can set a new cost basis for your portfolio, and that it actually is based on the tax year after you became a "resident"? I was only able to find articles from authors promoting living outside the US to avoid paying taxes, and they didn't seem to have any links to any actual IRS documentation or code. Those articles indicate that any pension or trust (i.e. IRA) income is considered to be sourced from where the pension/trust resides, so any 401(k) and IRA income would not be considered Puerto Rico sourced, and would have US taxes due.

I would also say that while you indicated that Puerto Rico does not tax capital gains, I found a webpage put out by internationally recognized tax consultancy Pricewaterhouse Coopers with a review date of 2/4/19 that indicates all capital gains of Puerto Rico residents are taxed

Capital gains and investment income

All capital gains and investment income of a Puerto Rican resident are taxable for Puerto Rican purposes.

Capital gains

The holding period to qualify as long-term capital gain will depend on the date of sale or exchange. Long-term tax treatment will apply to those capital assets held for more than one year.

Long-term capital gains are subject to a special tax rate of 15%.

Short-term capital gains are subject to the regular gradual rates.

So, it appears that the rules that you thought were in place may have changed. Given Puerto Rico's current economic situation, including, but not limited to, their attempt to declare bankruptcy, I'm not surprised that changes may have occurred.

And if capital gains of Puerto Rican residents are indeed taxed, I'm not sure you're going to gain anything even if you can claim that the capital gains are sourced in Puerto Rico.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.